Explaining Common Terms And Phrases
The words that come up when you’re buying a home:
This is the fee you pay in order to borrow money. It is paid back along with the original amount of the loan.
Example: If you borrowed $100 at 3% interest, the interest would be $3.
So you would pay back $103. That’s $100 loan + $3 interest = $103
Because interest is only part of the cost of a mortgage, simply comparing interest rates won’t tell you which one is really the most affordable.
This stands for Annual Percentage Rate. It takes the interest rate plus many of the other costs of a mortgage and spreads it out over the year. While it doesn’t include everything, it does give you a much more complete picture than just looking at interest rates. If you see ads for loans, it is better to compare APRs than interest rates.
1 point = a dollar figure that is 1% of the loan. Some borrowers pay “points” up front to reduce the amount of the loan. Some Lenders or Mortgage Brokers charge “points” as part of their fees.
Good Faith Estimate (GFE)
The GFE is a document from the Lender that is the best estimate of all the fees or costs involved with getting your mortgage. By law, a Lender must complete this document for you within 3 days of you submitting a completed application. After completion the document will then be mailed. The GFE allows you to easily compare fees between different lenders.
Everyone thinks of this as the “loan” and the words are often used interchangeably. Technically, a mortgage is a document that says the home you are buying is collateral for the money you are borrowing. Basically, if you do not repay the loan, the Lender has the right to take possession of the property.
This is someone who will contact many Lenders on your behalf in order to find a mortgage for you. They charge a fee for this service. It could be a flat fee or a “point” (see above.) Some homebuyers use a mortgage broker. Some go directly to a Lender (1st Alliance is a Lender).
This is the institution that makes the loan. (1st Alliance is a Lender.)
This is a type of mortgage where you pay the same rate over the life of the loan. It is explained in detail here along with other types of mortgages.
ARM or Adjustable Rate Mortgage
This is a type of mortgage where the rate you pay changes over the life of the loan. It is explained in detail here along with other types of mortgages.
This is the length of time of the loan. Examples: 15yrs, 30yrs. A longer term means lower monthly payments. But it also means you will pay more interest over the life of the loan.